TWO YEARS after selling off its loss-making Castle Timbers operation in Bellville, wood products specialist Kay-Dav appears to be firmly on the road to sustainable profitability.
Epping-based Kay-Dav - which specialises in the distribution of wood-based panels to the construction, furniture manufacturing and shop-fitting industries – posted a robust 18% hike in revenues to R299m in the half-year to end June.
But the company did endure margin pressure in tough trading conditions, with the gross profit percentage for the interim period squeezed down around 32% last year to under 30%. This restricted Kay-Dav’s gross profit increase to 11,5% to R89m.
Kay-Dav CEO Gary Davidson deemed the half-year results pleasing “considering the continued challenging trading conditions in the industry.”
Davidson noted activity levels in the timber industry were determined by consumer demand.
“On a macro level it appears that the group will continue to face strong headwinds in the short to medium term with the current high consumer debt levels, the negative employment outlook and possible increased inflation and interest rates, all of which are expected to negatively affect consumer demand.”
But he pointed out that on a micro-level Kay-Dav’s management was focused on increasing market share at acceptable gross margins. “To this end the group established a new outlet in Durban which is performing in line with management’s expectations.”
Davidson stressed management also continued to ensure effective cost and working capital control.
In the interim period Kay-Dav managed to restrict the increase in operating expenses to 10,6% despite the increased trading activity as reflected in the turnover jump.
There is also some good news on the pricing front. Davidson indicated that while selling price inflation had lagged behind operating cost inflation for a number of years, the company was now seeing signs that the cycle may be turning. “This, together with the earnings growth during the first six months of the financial year ending
31 December 2013, bodes well for the second half of the financial year which normally generates the greater contribution to operating profits.”
Further confidence in the trading period ahead was evident in Kay-Dav’s willingness to stretch its overdraft R16m. This followed a “significant” investment in inventories for strategic reasons over and above what was required to service turnover growth. Inventories of R106m as at the end of June exceeded those of the previous year by R29m.
By Jenni McCann